Internet scams - don't get done online

If you believe the hype, the Internet will revolutionise the way we consume, shop and conduct business in the future. While many people are happy to purchase goods and services online, the stories of shady characters, fly-by-nighters and unscrupulous operators using the Internet to manipulate unsuspecting consumers is - rightly - stopping a lot of people from using the full potential of the Internet.

Caution should always be applied when purchasing, online or otherwise. But when you don't have a bricks and mortar shopfront, or a person's face to speak to, how can you tell the "real McCoy" from a shonky set-up?

Unparalleled in its reach as a communications medium, the Net creates enormous possibilities - not only for e-commerce, but also for Internet crime. There is huge scope for a barrage of frauds, scams, intrusions and piracy, including chain letters, bogus billings and non-existing investment plans.

Most frequent frauds

In the US, the National Consumers League has said it receives more than 100 complaints related to Web scams each month, dealing with amounts ranging from $US10 to $US10,000. The 10 most frequent fraud reports involve undelivered Internet and online services; damaged, defective, misrepresented or undelivered merchandise; auction sales; pyramid schemes and multilevel marketing; misrepresented cyberspace business opportunities and franchises; work-at-home schemes; prizes and sweepstakes; credit card offers; books and other self-help guides; and magazine subscriptions.

In an attempt to combat dubious Web activity, the International Marketing Supervision Network (IMSN) instigated an annual global Internet sweep in 1997. The Internet sweep days are coordinated by the Australian Competition and Consumer Commission (ACCC) and involve around 70 consumer affairs enforcement agencies from 30 countries.

In 1997 the sweep day targeted "get rich quick" schemes and in 1998 the focus was on Web sites promoting "miracle cures" and misleading health claims. Once suspicious sites are identified, the operators are e-mailed a message advising them that their activities could be in breach of the law.

The sweep results identified over 1100 suspicious Web sites in 1997 and 1400 in 1998. The results of the third sweep day (1999), which was coordinated by the ACCC in conjunction with the IMSN, are not yet available. The 1999 sweep day assessed e-commerce Web sites, with participants in the sweep day examining sites within a particular industry (e.g., books, travel, CDs, clothing). The Australian agencies which participated in the 1999 sweep included the National Office of the Information Economy (www.noie.gov.au), the ACT Consumer Affairs Bureau (www.consumer.act.gov.au), the Victorian Office of Fair Trading and Business Affairs (www.justice.vic.gov.au/oftba), the NSW Department of Fair Trading (www.fairtrading.nsw.gov.au), and the WA Ministry of Fair Trading (www.fairtrading.wa.gov. au).

For the ACCC, the issue of Internet fraud protection is essentially the same as other areas of consumer fraud.

"Any scams regarding the sale of goods and services that existed prior to the Internet have been reborn via the medium, and this could be pyramid selling, chain letters, or dubious advertisements," said Lin Enright, director of public relations for the ACCC. "Basically, we are faced with the simple challenge of protecting consumers through the proliferation of e-business and enforcing the Trade Practices Act."

Scams around the world

Don't think that Internet scams are set in motion only overseas. Enright cites the recent example of a local ISP called Freenet 2000 that incorporated an income generation scheme via a pyramid referral process. (Note: Freenet 2000 is not associated with free.net)"The facility was designed to recruit new people to the service. The ACCC felt that this was in contravention of the Trade Practices Act and therefore decided to stop it."

However, Paul Childs, media manager at the Department of Fair Trading, believes most of the scams currently on the Web originate outside Australia. He says the biggest problem would be spam, the Internet's version of junk mail. It is similar to the unsolicited mail received in the post every day, and most of the spam comes from North America.

"One recent scam related to a lottery, whereby people were advised by e-mail that they had won money, but in order to collect it they must send $30 to an overseas address. They certainly don't put this money into sweepstakes; I think it actually buys someone a nice cigar or a dinner on the other side of the world," Childs said.

When it comes to the Web and e-commerce, Enright says users should first ensure they can find the physical location of the seller.

"They should make sure they have a street address and the telephone number of the person they are buying from, and make sure they are secure. They should also check the type of guarantees and warranties that are available."

Childs said the Department of Fair Trading is constantly warning consumers about the pitfalls of purchasing online.

"The Internet is a whole new way of shopping. With conventional purchasing, you can simply arrive at a shop or at a counter and request a refund. It isn't that simple with the Internet, with a site located in North America or Thailand.

"Occasionally we talk to overseas law enforcement bodies about scams on the Web, and recently [the Department of Fair Trading] had discussions with the Mounties [Canada's federal law enforcement body] about Web scams. We recently took action against a local operator selling CDs via the Internet. People buying CDs from the company were being billed twice for their purchases. We are still in the process of acting against this company."

Rise of cyberbanking fraud

Cyberbanking has added a new dimension to Internet scams, providing the potential for Web-based financial institution fraud. According to ACCC statistics, 88,000 Australian Internet users were regular users of online banking in 1998, a number that grew to approximately 145,000 last year.

In recent years, a range of cyberbanking fraud cases was uncovered by the US FBI. As far back as 1994, a group of people in Russia gained unauthorised access to Citibank's Cash Management System. As a result, more than $US10 million was wire transferred to pre-established accounts throughout the world, with cash moved from accounts as far away as Argentina and Indonesia to bank accounts in San Francisco, Finland, Russia, Switzerland, Germany and Israel. In the end, all monies were recovered with the exception of $US400,000 taken before monitoring began.

Banking practices differ internationally. Locally, the Code of Banking Practice relating to online banking in Australia can be accessed on the Australian Bankers' Association Web site at www.bankers.asn.au. Last year, the Australian Securities and Investment Commission (ASIC) announced the formation of a working group to ensure that consumers using electronic banking had access to adequate consumer protection.

Last year, the Australian Securities and Investment Commission (ASIC - www.asic.gov.au) clearly illustrated how easy it was to fool online investors with its Millennium Bug insurance site, which persuaded 233 Australians to part with more than $4 million.

As the Australian regulator of the securities and futures markets, the ASIC is responsible for consumer protection in the financial services sector. In order to educate consumers about investing on the Internet, ASIC designed and developed the Millennium Bug Insurance cyberscam on 1 April 1999.

The scam site (www.smbi.com.au) offered a fake investment scheme in an effort to highlight the willingness of people to invest in companies about which they know nothing. The ASIC's April Fool's Day joke succeeded in convincing more than 1400 people to seek further investment information.

The ASIC Web site also includes "Internet Safety Checks" that highlight basic checks that can be made by consumers before investing in Internet-based schemes. These include checks to ascertain whether a company exists and whether or not it has issued a prospectus.

The ASIC electronic enforcement unit also houses programs to trawl through various Australian sites and locate offers and information related to shonky investment offerings. Continuing to highlight cyberscams, ASIC also launched the "Gull Awards". Located on its Web site, the Gull Awards feature precautionary tales of investment scams and how to avoid them.

According to Irene O'Brien, ASIC's national media adviser, "The most common scams currently on the Web involve people asking for sums of money and promising to bring phenomenal returns, up to around 200 per cent.

"Ultimately, from our point of view, people should treat the offers they see on the Internet the same way they would if someone walked up to them on the street and verbally announced they could double or triple their money. You would want further information, and conduct further research. There is no way that you'd hand over your money there and then."

Internet Fraud Watch and the National Fraud Information Centre facilitate the efforts of law enforcement agencies by providing a one-stop reporting centre for consumers at www.fraud.org.

According to Internet Fraud Watch, which is operated by the US National Consumers League, complaints have increased 600 per cent since 1997.

"More people are online, and more people are getting scammed," said Susan Grant, Director of the Internet Fraud Watch. "Consumers need to remember that con artists are everywhere - even in cyberspace."

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